The Concept of Worth

How does a board know when the results are no longer worth the cost?

One of the chief virtues of the Policy Governance model is its well-structured approach
to defining, focusing on, and achieving an organization’s purpose. We call the resulting
policies Ends and refer to them when we ask the questions “What benefit? For whom?
And at what cost?” Boards and practitioners often have little difficulty with the concepts
of what difference they are trying to make and for whom they are trying to make it. But
they often stumble over the notion of the cost, or said another way, the worth of their
achievements. This article suggests a strategy for conveying the concept of ends to boards
through reference to the concept of worth.

Here is a simple way of addressing
the question: Once a board is clear
about the first two concepts, the next
question to ask is, “For all the good we
wish to do and for all the costs in terms
of resources and time that they spend
to accomplish those things, is it worth
it?” Many boards are brought up short
by this question. Some even get a little
resentful when I ask it. “After all,” theysay, “we’ve been doing great things for
our community for many years. We’re
well respected, well run. How can you
stand there and ask us if it’s worth it? Of
course it is!”

A few of the board members do
begin to get a glimmer of an idea, albeit
reluctantly, of what I’m saying. I press
on. Let’s say I’m addressing the board
of a not-for-profit organization. “Your
annual budget is about $8 million,” I say.
“If your budget were $10 million, would
the results you currently produce still be
worth the higher cost? Would they still
be worth it at $12 million? $15 million?”
“At what point,” I continue, “would you
say they are no longer worth it?” Lastly,
and this is the key, I ask them, “How
would you know? How would you know
when you reached the point at which
the results you produce were no longer
worth their cost?”

While they’re mulling that one over
(and looking at me dubiously), I give
them something more to think about. I
ask them, “Isn’t this one of the most fundamental
questions a board, any board,
in the exercise of its fiduciary duty to its
ownership, to its community, should be
asking?”

I find that it’s often instructive to
compare and contrast practices in the
for-profit sector with those in the notfor-
profit or government community. If I
were to ask the board of a for-profit enterprise
this last question, they would be
well within their rights to escort me summarily
from the room. For-profit boards
have no need of this question. They
have something called a marketplace
that answers it for them. In the harsh,
competitive world of private enterprise,
consumers make decisions everyday
about the worth of a company’s product.
Whether comparing prices on soap at the
grocery or analyzing the fees and performance
of two mutual funds, people are
constantly making decisions about worth
at the office, at home, and throughout
their professional and personal lives.
The boards and managements of
the firms selling the soap brands or the
mutual funds know quickly whether
their products are worth it or not. If
their brand is deemed inferior, they will
rapidly lose market share, revenues, and
profits; eventually, if they don’t respond
quickly enough, they go out of business.

It’s no different in the professions.
Accountants compete with other
accountants, doctors with doctors,
lawyers with lawyers, all on the basis of
the comparative worth of their services.
Many factors play a role in the worth
assessment done by a consumer: reputation,
special expertise, the expected
results, and of course cost.

Worth, in the for-profit world, is a
cost-benefit analysis. The irony is, the
same people who make these decisions
repeatedly in their daily lives (and do so
almost unconsciously), once they come
to sit on the board of a not-for-profit
organization, suddenly lose the capacity
to make these same assessments concerning
the worth of the organization’s
achievements. Somehow, this question
seems to lose its potency once it is raised
in a not-for-profit context. But should it?

Let’s take one example. Public
school boards often command budgets
of hundreds of millions of dollars,employ thousands of workers from teachers to administrators to school
bus drivers, and labor under the watchful
eye of the parents and other residents
of their school districts. School
board members are elected by their
community and unselfishly volunteer
their time. They come from all walks
of life, but primarily they come from
the same for-profit world we’ve just
been discussing. Often well known
and respected in their communities,
they are bankers, homeowners, lawyers,
teachers, and company owners.
By any measure, one would think they
are prime candidates for being fully
competent to answer this question of
worth.

Yet despite their experience and ability,
these community representatives
struggle with the question. Often, they
admit that they hardly think about the
worth of their district’s achievements,
if ever. Their meetings and agendas are
full of data: financial reports and budgets,
graduation rates, union contracts,
facilities management, test reports. They
swim in oceans of data and discuss them
at every meeting. But when asked the
sorts of questions with which I opened
this article, they look at me with dawning
realization: they don’t know the
answers and seldom ask such pivotal
questions, if at all.

Another irony, I point out, is that
parents in their community make this
assessment constantly, as they do with
most every aspect of their lives. This is
why we have charter schools, private
schools, school voucher programs,
private tutors, and other private companies
engaged in helping students learn.
Parents look at their children and the
schools they are in and have no trouble,
with far less data than the school board
has, making a judgment of worth and
acting accordingly.

I pause a moment to let all this sink
in. Is this not a fundamental question,
one of the most fundamental a board
should ask itself, and be able to answer?
Does it not go to the heart of a board’s
duty, to know that the organization
it oversees actually produces results
worth their cost? Most of the time, I’d
be willing to bet, the question never
even comes up. Yes, questions of cost
often come up. School boards are concerned
with the cost of programs, new
buildings, equipment, salaries, and so
forth. Costs of specific components of
producing desired results do not equate
to the worth of results. The difficulty
and the solution lie in the question of
benefits.

To assess their worth more accurately,
organizations must meet the
challenge of defining the benefit, difference,
or change they wish to make
purely in terms of results. Most school
board members know, for example,
that no matter how much they want to
increase the graduation rate or standardized
test performance, these are
not the real issues. Producing young
citizens capable of thinking and acting
responsibly, with the knowledge they
need to be successful in their lives, is
the real issue. Graduation rate and test
scores may be indicators of that result.
On the other hand, they may be indicators
that standards were dumbed down
to produce a desired metric.

The challenge, then, is to define as
clearly as we can the results we’re really
after. What kind of “student thinking”
do we mean? The board begins to
define critical thinking as the standard
to achieve. What kinds of knowledge
are needed for success? The board may
choose to define the areas of knowledge,
from literacy skills to science and
world awareness. As this definition of
results proceeds, the board also gains
the missing part of its worth equation
and soon will be ready to take the next
step in answering this fundamental
question.

Once a board has a firm grasp of
what it wants to produce, it can compare
that to what it is producing. It
can also compare itself to what other,
similar organizations are producing.

This goes on in the for-profit sector all
the time. Companies constantly look
to see what their competitors are doing
in product improvements, cost cutting,
lower prices, more efficient delivery
systems, and so on. They respond if
they think it places them at a competitive
disadvantage, which is another way
of saying their product is worth less. Is
there any reason a not-for-profit organization,
with a board composed of
people who largely come from the forprofit
world, cannot do the same thing?
Many nonprofits offer objections to
this approach. “Our world is different,”
they say; “it’s not the same as the world
of for-profits!” But the chief obstacle
I find is that they simply haven’t tried
it. The fundamental question of their
worth remains unanswered. There can
be little doubt that, if they were forced
to do so, just as the marketplace forces
their for-profit counterparts to do so,
the means could and would be found.

In the not-for-profit “marketplace,”
we know organizations are not so
forced. It becomes a matter of will
once the importance of this question
of worth is plain. The board must be
the one to take the lead. It is central
to their servant-leadership that they
justify the costs of their existence by
the results they produce for their community.
By doing so, they will cause a
profound shift in the perspective with
which they approach the work of the
board, and an even greater shift in the
role nonprofits play in our communities
and our society.

Jim Hyatt, an attorney, is a consultant and
associate with Charney Associates. He can be
contacted by e-mail at jim@bcharney.com,
through their Web site www.bcharney.com, or
by telephone at (303) 321-3190.